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Canada remains most competitive business tax environment worldwide

TORONTO – June 17, 2014

Toronto, Vancouver and Montreal lead international cities for tax competitiveness

KPMG’s Competitive Alternatives 2014: Focus on Tax [PDF 1.57MB] report released today revealed that Canada remains the most tax competitive country for business globally. Canada’s top international ranking is mainly due to low effective corporate income tax policy combined with moderate statutory labour costs as well as our harmonized sales taxes. The United Kingdom ranked in second spot with Mexico landing in third in terms of tax competitiveness.

Toronto, Vancouver and Montreal held the top three spots among the 51 major international cities (population of two million or more) included in the 2014 report. A total of 107 cities were featured in the study, of which 15 were Canadian.

When we include all cities regardless of size, nationally, Edmonton ranked as the most tax competitive city in Canada, improving on its second-place ranking among small and large Canadian cities in the 2012 report.

The study also revealed there is no standard approach in setting tax policy among the countries studied. Although the types of taxes used to raise government revenues are more or less similar among countries, there is a large range in how these taxes are weighted and applied.

Some countries have a tax policy focused on delivering a low corporate income tax rate in order to compete for more businesses. These countries may need to rely more heavily on other taxes, such as sales or payroll taxes, to derive their tax revenues. Similarly, some countries use their tax policies to attract certain types of businesses with targeted incentives for activities such as manufacturing or research and development (R&D). The Organisation for Economic Co-operation and Development (OECD) continues to address these types of differences in its BEPS 15 Point Action Plan to introduce global collaboration to modernize the international tax system.

Overall ranking and total tax index* for featured countries

2014 Rank

Country

2014 Total Tax Index*

% tax cost advantage versus US

2014 Rank

Country

2014 Total Tax Index

% tax cost advantage versus US

1

Canada

53.6

46.4%

6

Australia

112.9

-12.9%

2

United Kingdom

66.6

33.4%

7

Germany

116.3

-16.3%

3

Mexico

70.2

29.8%

8

Japan

118.6

-18.6%

4

Netherlands

74.5

25.5%

9

Italy

135.8

-35.8%

5

United States

100.0

-

10

France

163.3

-63.3%

*Total tax costs are compared between countries and cities using a Total Tax Index (TTI) for each location. The TTI is a measure of the total taxes paid by corporations in a particular location, expressed as a percentage of total taxes paid by corporations in the US. The US has a TTI of 100.0, representing the benchmark against which other countries and cities are scored. For example, an overall index number of 51.6 means total tax costs are 48.4 per cent lower in that country than the US.

The top three: a Canadian sweep

Toronto, Vancouver and Montreal take the top three spots among major international cities in 2014:

Toronto ranked first overall among the 51 major international cities studied. For the four sectors studied – digital services, R&D, corporate services and manufacturing – Toronto ranked fifth or higher in each sector, but didn’t rank first in any single sector. This shows Toronto as having consistently competitive taxes for a wide range of businesses, rather than especially low taxes for one sector in particular.

Vancouver ranked ahead of Toronto in 2012, but dropped behind Toronto in the 2014 rankings. This change in ranking is due to several factors, including BC’s corporate tax rate increase from 10 per cent to 11 per cent, the final reversion from HST to PST, and the elimination of the BC industrial property tax credit (which provided a partial exemption from school taxes for industrial property).

The range of tax incentives available in Montreal contributes significantly to its relatively low tax costs. Incentives are available for many activities included in this study, including R&D, e-business, digital media production, international financial activities and manufacturing.

Ranking and total tax index for top 5 major international cities (population of two million or more)

2014 Rank

City

2014 Total Tax Index

1

Toronto, CA

51.6

2

Vancouver, CA

54.5

3

Montreal, CA

55.6

4

Manchester, UK

58.1

5

Monterrey, MX

69.4

Here at home: Canadian highlights

Smaller Canadian cities, in addition to the larger international ones, were also studied as part of the 2014 report. The 15 featured Canadian cities [PDF 144Kb] ranked ahead of their US counterparts yet again; however there are some changes this year in the national rankings:

Edmonton is the most tax competitive city in Canada, having moved up from 2nd place in 2012 due to the former tax leader, Saskatoon, dropping to 6th place in 2014. Changes made to the Saskatchewan R&D tax credit in 2012 are the reason behind this drop for Saskatoon.

Atlantic Canada remains a highly tax competitive region in Canada with Moncton, Fredericton, St. John’s and Halifax rounding out the top five tax competitive cities in the country.

Quebec City moved up to 9th place this year primarily due to an innovative property tax provision that rewards owners who improve their properties, thus causing assessed value to increase. Bio-pharma and e-business incentive enhancements also helped Quebec City secure this spot.

Ranking and total tax index for featured Canadian cities (international and smaller cities)

2014 Rank

City

2014 Total Tax Index

2014 Rank

City

2014 Total Tax Index

1

Edmonton

42.7

9

Quebec City

54.0

2

Moncton

42.9

10

Niagara Region1

54.4

3

Fredericton

43.0

11

Vancouver

54.5

4

St. John’s

43.8

12

Montreal

55.6

5

Halifax

47.9

13

Kamloops

55.8

6

Saskatoon

48.8

14

Winnipeg

55.9

7

Charlottetown

49.5

15

Sudbury

56.8

8

Toronto

51.6

1 Niagara Regional Municipality

Digital, R&D, Corporate Services and Manufacturing sectors

Despite the ever-changing landscape of Canadian industries, Canada’s 2014 sector rankings remained strong, consistent with the 2012 Focus on Tax results.

Canada’s first-place ranking and low TTI (17.1) in the Digital Services sector is primarily due to significant provincial incentives that provide support to video game producers and other digital media industries. Meanwhile, federal and provincial income tax credits for the R&D sector enable Canada to also remain in first place in that sector. In the Corporate Services sector, Canada ranked second behind the United Kingdom, while Canada ranked second behind Mexico in the Manufacturing sector.

Canada’s sector rankings and associated tax cost advantage

Sector

2014 Sector Rank

2014 Sector Tax Index

% tax cost advantage versus US

Digital

1

17.1

82.9%

R&D

1

30.6

69.4%

Corporate Services *

2

69.8

30.2%

Manufacturing

2

65.5

34.5%

*Corporate Services represent front and back office type operations.

QUOTE

“This year’s report demonstrates that once again Canada provides an attractive business tax climate. Our corporate tax policies ensure Canada remains a viable option and desirable location for businesses looking to locate or expand their operations.”

Focus on Tax is a supplement to the 2014 Competitive Alternatives report [PDF 11.64MB], a biennial global report released in March examining business costs across 10 countries. Focus on Tax assesses general tax competitiveness in the 107 featured cities and 10 countries and compares various tax rates in each location including: corporate income tax, property taxes, capital taxes, sales taxes, miscellaneous local business taxes and statutory labour costs - all resulting in a Total Tax Index (TTI). Details of all cities covered are included in Appendix A of the report.

Full details of the specific tax rates applied for corporate income tax and other corporate taxes in each jurisdiction can be found in Appendix B of the Competitive Alternatives 2014 Volume II report.

Full details of data sources used for tax information and the broader business cost factors (such as local wages and property values) that impact this study can be found in Appendix D of the Competitive Alternatives 2014 Volume II study report.

KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG member firms around the world have 155,000 professionals, in 155 countries.

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KPMG International Cooperative ("KPMG International") is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.